College Finance 101: Students Should Keep Debt under Control

It was the fall of 1986, and she was entering her freshmen year at the University of California-Irvine. She was moving into her dorm room when she first saw them.

"Right there on my bed, in my room, there were applications for Visa and MasterCard. There wasn't a sheet on the bed. There wasn't something that told mc about the campus environment. There was something that told me about credit cards; everywhere I went there were things like that," she says. "When I paid for my books at the bookstore, they gave me my receipts and stuffed the bag with credit card applications. When we went to the African-American student union, it was posted on the walls, with those detachable take-off applications. They were everywhere."

Khalfani learned her lesson the hard way. Like many incoming college students, she jumped right in, applying for credit cards and student loans, and running up a high debt for both of them. Ultimately, she racked up about $100,000 in credit-card debt and $40,000 in student loans.

Many other college graduates face a similar debt burden. On average, a college grad leaves school with about $20,000 in student-loan debt. And if they've gone to grad school, the average debt jumps to $32,000. Professional specialty schools--such as law and medical school--can leave students with six figures in student-loan debt.

Soon after graduation, Khalfani, now 39, tackled her debt aggressively and paid off the entire load in three years. Today, she is a money coach who has authored step-by-step books, including Zero Debt for College Grads, which outlines ways to avoid or quickly get off the disastrous path that she once trod.

For many college students, getting a credit card--or two or three or more--is a rite of passage. It is a chance to spend excessively and without permission. And sadly, it is also a way to get into a lot of financial trouble, trouble that can take years to fix.

According to the Consumer Federation of America, a nonprofit organization that's based in Washington, D.C., credit card companies send out 5 to 6 billion credit card applications to Americans each year. When it comes to marketing, college students are a relatively easy group to target because many do not have credit and, as a group, they are financially vulnerable. For the most part, college campuses are lagging when it comes to educating students on financial literacy, says financial education specialist Patricia Stallworth.

"We need a commercial much like the ones they have for medicines, which warn you of the side effects," says Stallworth, who also is president of iWorth Inc. "Once I hear all that can go wrong, I don't want any part of those medicines,"

Kelly Tanabe, co-author of Sallie Mae's How to Pay for College: A Practical Guide For Families, says that even if colleges added consumer education to their curriculum, or as part of mandatory seminars, it likely wouldn't be enough to counter the onslaught of credit card applications that confront college students. "A lot of the colleges think that [financial literacy] is not something that a college should be teaching, but it's something that parents should be doing," Tanabe says. "But when parents are spending beyond their means, there's not much that you can expect" from the students.

Some universities have caught up and are taking a more progressive approach to helping students deal more effectively with debt. "We teach kids how to make money, but we don't teach them what to do when they make it," says Stallworth, who has given financial literacy seminars to incoming freshman at institutions, including Morehouse College. "People learn by trial and error. And for our kids, we really need to hunker down and get that done for them. They need to understand how important economic power is, not just now but for their future."

Administrators at other universities, including Texas A&M University, have started doling out sound financial advice to their students, offering tips to get--and keep--them on task when it comes to navigating potentially dangerous financial waters. …

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